FIVE BIG FOURTH QUARTER STORIES
FIVE BIG FOURTH QUARTER STORIES
First, let us share the good news that Fund VII is now funded from its first closing and is making commitments to a selection of leading blockchain venture fund managers. There will be a second closing before the end of 2024 for those of you who want to allocate capital this year, and as always just let us know at IR@BlockchainCoinvestors.com should you wish to learn more about our investment strategies including Fund VII.
Turning to this week's newsletter, we are now well into the fourth quarter of 2024, and it is the time of year when we start to think about what just happened, and what may happen in the year to come. For those of us in the US, we first have to get through a Presidential election, Thanksgiving, and the Holiday season, but notwithstanding this, we are seeing our inboxes begin to fill up with thoughtful reports on the 'State of Crypto in 2024'.
In this week's newsletter, we want to highlight 5 stories that we just heard, each one of which seems of great significance in the context of our investment thesis:
Crypto Adoption has Reached an Inflection Point
Stablecoins Are Surging
BlackRock and Securitize Have a Tiger by the Tail
Institutional Adoption is Accelerating
November's US Election Result Will Be Good for Blockchain No Matter What
Each is covered in turn.
Crypto Adoption has Reached an Inflection Point
The first story that got our attention reaffirms something we have shared with our investors for at least 6 years now. Blockchain and crypto are being adopted faster worldwide than the rollout of the Internet, driven by a combination of factors including over 65% of the world's population is already connected digitally; more than 60% of the world's population are digital natives who find it obvious that finance and commerce should be digital too; and the reality that digital offerings built on top of blockchain are cheaper, faster, more accessible and more secure than legacy solutions offered by the world's financial community today - they deliver more consumer value.
The State of Crypto 2024 report from A16Z doesn't go quite as far as to say we are at an inflection point (that's our view here at Blockchain Coinvestors) but it opens up with the simple facts demonstrated in the following exhibit from the report. In September 2024, 220 million monthly active addresses interacted with crypto products, and not only was this an all time high, but it compares through analogy very well with the curve of Internet Users.
By this analogy, it is about 1998 in Internet years
We all remember 1998. Most of the value creation in the Internet was still to come, and for investors, it was an ideal time to begin to allocate capital into the innovation.
Source: A16Z
The same report also illustrates that this growth is proliferating across more and more protocols and platforms (it is not all about Bitcoin anymore). But that is a different story.
You can read the rest of A16Z's report by clicking on this link.
Stablecoins Are Surging
The second story we read in October that really got our attention, was a succinct, to the point, memorandum by Bitwise's research team on the topic of Stablecoins called 'Could Stablecoins Put an End to Money Market Accounts?' For full disclosure, we are investors in Bitwise.
This is the first powerful use case of blockchain technology that has reached critical mass, and is now surging fast on every continent. In a way, it is the simplest to understand. All Stablecoins do is wrap something we all know very well (A fiat currency, dollar in most cases) and make it natively digital through the process of tokenization. So dollars can be moved at blinding speed, and almost no cost, across the Internet. Enabling cheaper, quicker and easier payments than any legacy payments infrastructure can offer.
Bitwise highlights the growth in the chart below, and go on to recap in simple terms the benefits of the invention.
Source: Bitwise
In fact, Stablecoins as a concept are so simple that we find investors are ignoring them when they ask us to give examples of practical applications of blockchain. It's like in 1998, when people wanted to find complex uses of the Internet, and tended to overlook the impact it was having on content sharing from the outset.
Today, most content is digital. Of course in the future, most payments will be natively digital too.
You can read the rest of Bitwise's report by clicking on this link.
BlackRock and Securitize Have a Tiger by the Tail
October also brought us the good news that Securitize, a portfolio company, is now seeing tremendous growth in the tokenized money market fund that BlackRock has built on its technology.
Known as BUIDL, the fund essentially puts a digital wrapper around traditional financial products - in this case treasuries - and allows them to be offered in tokenized form for use in digital infrastructure including custodians, marketplaces, and exchanges. This is profound; Just as one use case, in conventional trading spaces, traders put up dollar based collateral and earn interest on it. To date, in the crypto world, trader collateral in dollars does not typically earn anything. Now if a trader puts up BUIDL, or a protocol treasury parks its excess capital into the same, they earn the going interest rate.
Because BlackRock and Securitize have chosen to develop BUIDL on Ethereum, it is very transparent. Unlike almost any other financial product in the world, you can get real time information about the fund's balances, trading volumes and so on. If you want to see that for yourself, click on this link that will take you to Etherscan (one service that makes sense of the data for you). The following exhibit is a screenshot of the same as of the time of writing.
Source: Etherscan
Simply put, this is a leveling up of real world financial assets. In the future, all financial assets will be digitalized to enable not only efficiency gains, but also to unlock new use cases and functionality.
You can read a little more about this story at Bloomberg by clicking on this link.
Institutional Adoption is Accelerating
Twice a year, we publish our 'Institutional Digital Finance Adoption Report' which you can read by clicking on this link. The report has shown an accelerating adoption of blockchain based products and services by the world's top 50 financial institutions by assets under management since we first published it.
Now Bitwise has included a similar analysis in its 'Crypto Market Review (Q3 2024)'. While the report is full of many other compelling data and analysis reaffirming the inflection point in blockchain innovation, we single out this one which is on page 65 because it shows the reality of what the world's largest financial institutions believe. Whatever they say, their actions speak louder, and most of them are now applying blockchain technology to digitize and upgrade their businesses.
The second part of our investment thesis is that all of the world's financial infrastructure will need to be upgraded (in order to enable the digitalization of monies, commodities, and assets) and this is what Bitwise is showing. The world's largest financial institutions are now engaged in this digital transformation. More often than not, they end up using the infrastructure built by the blockchain companies and projects we invest in at Blockchain Coinvestors. Which is very exciting to see.
You can read the rest of Bitwise's report by clicking on this link.
November's US Election Result Will Be Good for Blockchain No Matter What
The fifth and final story for inclusion in this newsletter is about US politics and the upcoming US Presidential election - as well as the elections in the senate, house, and at other levels of US government that get decided at the same time.
On October 11th we held a webinar with Kristin Smith, the President of the Blockchain Association, which is perhaps the US's most important industry association representing blockchain and crypto participants. A lot of you joined, and if you did not, you can watch the webinar with Kristin Smith by clicking on this link.
Kristin was very informative, transparent and thought provoking. At the end, we asked her this question:
"Here at Blockchain Coinvestors we think all outcomes of November lead to greatly accelerated blockchain innovation relative to the last four years of Biden/Harris anti crypto army activities.
At one extreme:
A republican clean sweep at every level of government would create a perfect storm of support for the industry.
Conversely a democrat clean sweep would still leave us with a majority of democratic party politicians supporting pro innovation, pro blockchain change especially as they analyze the voting patterns and realize in the next election in 2026 there will be even more pro crypto voters, money and momentum.
So whatever happens, blockchain support is growing and will grow even faster in Washington from here on.
Are we drinking too much kool aid?"
Kristin's response was "No you are not drinking too much Kool Aid, and yes we have reached a turning point."
She went on to lay out in detail just why there is no political upside to being negative about blockchain and crypto. You can see the detail of this starting at about minute 36 of the webinar.
You can find the webinar with Kristin Smith by clicking on this link.
Conclusions
In conclusion, the breadth and depth of data, analysis, and insight that is flowing now about global blockchain adoption is at an all time high. It is just an obvious observation that digital monies, commodities, and assets are inevitable and if you doubt that, just read and listen to some of the year end reports that we have highlighted, or the many that have yet to be published. By year end, the 'inflection point' that we have been talking about will be plain to all.
If 2025 is 1999 in Internet years, then as investors we all know with hindsight what we need to do. Allocate ahead of powerful tailwinds and alongside a global innovation that is only beginning to ramp up.
Fund VII News
As noted in the opening of this newsletter, we have successfully conducted a first closing for our new Fund of Funds, and are making our first commitments to leading blockchain VCs. There will be a second closing in 2024 before year end for those of you who want to allocate some capital. The Fund VII value proposition is:
A SINGLE INVESTMENT ACCESSES GLOBAL, DIVERSIFIED EXPOSURE TO LEADING EARLY STAGE BLOCKCHAIN VENTURE INVESTMENTS ON AN INSTITUTIONAL PLATFORM
Contact our investor relations team at IR@BlockchainCoinvestors.com for details.
Thank for reading
The Blockchain Coinvestors Partners
About Blockchain Coinvestors
Blockchain Coinvestors is the best way to invest in blockchain businesses. Our vision is that digital monies, commodities, and assets are inevitable and all of the world’s financial infrastructure must be upgraded. Our mission is to provide broad coverage of early stage blockchain investments and access to emerging blockchain unicorns. Blockchain Coinvestors’ investment strategies are now in their 10th year and are backed by 400+ investors globally. To date we have invested in 40+ pure play blockchain venture capital funds in the Americas, Asia, and Europe and in a combined portfolio of 1,250+ blockchain companies and projects including 95 blockchain unicorns. Blockchain Coinvestors’ first fund of funds ranks in the top decile amongst all funds in its category on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in London, New York, Grand Cayman, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.
“The best way to invest in blockchain businesses”